The risk of inflation for food is rising
One pressure that is starting to build is rising food prices. This has the potential to hinder consumer spending power at the same time that consumers are trying to handle the fall out from the COVID-19 pandemic.I came across a Bloomberg opinion pieces this morning that identified multiple factors for this situation:
1. Supplies tightening. In part this is due to China absorbing cargoes to meet trade-deal obligations
2. Droughts and storms have reduced corn and sugar prospects
3. The potential for the coming La Nina weather pattern may make this situation worse.
Some key data points
1. On Friday the USDA release their key monthly estimates for global supply and demands. Expect a further deterioration of supply stock to further boost Soybean futures. US September soybean stockpiles fell 42% y/y which is the biggest drop in 12 years.
2. Before that we will have the united nations release their world food price index and it will show how rising prices have impacted the cost of food after costs dipped much lower in May to a four year low. It is possible that by the end of the year the index could be topping January's high which would make for the highest levels since 2014.
Aside from Soybeans, which hit a two year high in September, here are some key markets to watch.
1. Sugar has posted its fifth month gain
2. Corn hit a 11% gain in 3Q
Friday and the USDA release will be key, so commodity trades keep that in your diary.